Get the complete project »
- The Complete Research Material is averagely 52 pages long and it is in Ms Word Format, it has 1-5 Chapters.
- Major Attributes are Abstract, All Chapters, Figures, Appendix, References.
- Study Level: BTech, BSc, BEng, BA, HND, ND or NCE.
- Full Access Fee: ₦4,000
1.0 GENERAL INTRODUCTION
1.1 BACKGROUND OF STUDY
Monetary policy is mainly concerned with interest rate management and control of money supply in the economy. Fiscal policy on the other hand refers to how government influences economic output through its expenditure and taxation policy. Monetary and fiscal policy are tools that government implement to stabilise the economy and promote economic growth. Failure to implement either monetary or fiscal policy appropriately may lead to increase in inflation and limited economic performance.
Monetary and fiscal policy are the two commonly used macroeconomic tools to influence the economy. The relative impact of monetary and fiscal policy on the economy is a controversial issue among economists. The classical economists (monetarists) are of the opinion that it is only monetary policy that can influence the economy whilst fiscal policy would be ineffective. They argue that the economy is self-regulating, hence there is no need for government intervention in the economy. They believe in the ability of the economy to achieve full employment through its own internal mechanisms (Olofin & Salisu, 2014). The notions of the classical economists failed to prevent the Great Depression of 1930s from occurring and this led to the emergence of the Keynesian economists. The Keynesian economists led by John Maynard Keynes suggested that there is need for government intervention in the economy. They see aggregate demand as a key driver of economic growth and argue that government can stimulate aggregate demand by increasing its expenditure in the economy. They see fiscal policy as being largely effective on the economy while monetary policy would be ineffectual. In contrast to both the classical and Keynesian economists, the real business cycle theory suggests that both monetary and fiscal policy are not capable of influencing the economy.
In most countries, monetary policy has been instrumental in the implementation of fiscal policy because monetary authorities are often responsible for financing budget deficits (Laurens & de la Piedra, 1998). Lambertini and Rovelli (2003) argue that monetary and fiscal authorities may not have the same motivation and goals but their policy choices have a crucial impact on aggregate demand in the economy. According to Adefeso and Mobolaji (2010), monetary and fiscal policy are inseparable in macroeconomic management. Therefore, government need to strike a balance by finding an appropriate mix of these policies so that the influence of one on the economy does not neutralise the desired outcome of the other. The influence of monetary and fiscal policy on the economy tend to differ as government implement both policies simultaneously.
The earliest effort to resolve the monetary-fiscal policy debate can be traced to Andersen and Jordan (1968) which developed a model referred to as the Andersen-Jordan (A-J) equation or, as it widely referred to as the St. Louis equation to examine the relative impact of monetary and fiscal policy in the stabilisation of the United States economy. The equation is an estimated relationship (using the Almon lag procedure) between changes in gross national product and changes in money supply and high-employment Federal expenditures (Carlson, 1978). According to Batten and Thorton (1986), the major critiques of the A-J equation are omission of relevant exogenous variables, simultaneous equation bias and failure to identify appropriate measures of monetary and fiscal policy. Other critiques include heteroskedasticity problem, endogeneity problem and the use of the Almon lag procedure. Over the years, the St. Louis equation has witnessed empirical modifications and has been widely used to determine the relative influence of monetary and fiscal policy in both developed and developing economies.
In Nigeria, few studies have employed the St. Louis equation among which are Ajayi (1974), Aigbokhan (1985), Asogu (1998) and Adefeso and Mobolaji (2010). This study attempts to give further evidence on the relative impact of monetary and fiscal policy in Nigeria.
1.2 STATEMENT OF THE PROBLEM
Since independence in the 1960’s, Nigeria have been striving to achieve sustainable economic growth and development. The poor growth performance of the country over the recent years is often attributed to the ineffectiveness of monetary and fiscal policy undertaken. Indeed, it has been argued in literature on currency unions that inappropriate monetary policy and constraints on national fiscal policy can deteriorate the economy of a particular country if not well modelled (Nwanchukwu,2014).
A major strand in literature regarding the roles monetary and fiscal policies play in fostering economic growth and development is that government’s support for knowledge accumulation, research and development, productive investment, the maintenance of law and order and the provision of other public goods and services can stimulate growth and development in both the short-run and the long run. These, notwithstanding, the extent to which monetary and fiscal policies engender economic growth and development has continued to attract empirical debate especially in developing countries in sub Saharan Africa (OECD,2015).
Extant Literature reveals that there are different opinions as to which coefficients best capture monetary and fiscal stance. Consequently, past empirical results differ greatly between various studies as emphasized in the sensitivity of the findings to changes in policiy stands of developing economies. A significant problem with most of the past emerging economies studies is the inability of the studies to apply pair-wise combinations of the monetary and fiscal policies in government policy framework. This implies testing the effects of monetary and fiscal policy on economic growth and development taking into accounts the structure of monetary and fiscal policies. In other words, most past developing countries’ studies focused on the effect of government deliberate monetary and fiscal policies on economic growth and development while ignoring, the fundamentals of both tools (Kumba,2015).
1.3 STATEMENT OF HYPOTHESIS:
H0: α = 0, There’s no significant relationship between fiscal policies on economic growth of Nigeria
H1: α ≠ 0, There’s no significant relationship between fiscal policies on economic growth of Nigeria
1.4 OBJECTIVES OF THE STUDY
The main objective of this study is to examine the relative effectiveness of monetary and fiscal policies in macroeconomic stabilization, measured in terms of national income and inflation, in Nigeria. More specifically, the study seeks:
1. To establish the channels of monetary policy transmission in Nigeria
2. To establish the channels of fiscal policy transmission in Nigeria
3. To establish the relative effectiveness of monetary and fiscal policy;
4. To determine the type of relationship that exists between monetary and fiscal policy in Nigeria.
1.5 RESEARCH QUESTION
In line with the research problem this study raises the following research questions:
1. What are the channels of monetary policy transmission in Nigeria?
2. What are the channels of fiscal policy transmission in Nigeria?
3. What is the relative effectiveness of monetary and fiscal policy in output stabilization in Nigeria?
4. What is the relationship between monetary and fiscal policy in Nigeria?
1.6 SIGNIFICANCE OF THE STUDY
This study makes a threefold contribution to policy and the existing literature. Several studies on monetary policy transmission mechanism (MPTM) in low-income economies have been based on research findings in industrialized economies. Given that the economic structure of LICs 22 differs markedly from that in industrialized countries, one cannot expect that findings on monetary transmission in industrialized countries would necessarily hold for LICs. This study adds to the existing literature by assessing the transmission mechanism of monetary and fiscal policy taking into account the systematic drivers of the economic structure of a poor and post conflict country, that is, an economy that mainly depends on weather conditions and foreign aid. Little is known about the MPTM in Nigeria; the two existing studies by Davoodi et al. (2013) and Rusuhuzwa et al. (2008) used a narrow set of methodologies. Using a large and relatively recent data, the study findings will inform policy makers about the current relationship between these two economic policies. For instance, the findings could help the monetary policy makers understand which monetary policy transmission channel impacts on economic activity, how fast the effects are transmitted and how long they remain relevant, as well as identify the tradeoffs between output stabilization and price stability in the Nigeria economy.
The study’s findings could also help policy makers to understand which channel of fiscal policy transmission is more effective, and hence focus on this mechanism in order to boost economic activity, and/or ensure price stability. This is because, despite the Nigerian Government’s efforts to reconstruct the economic, relatively little analytical work has been done on the transmission mechanism of fiscal policy, which is essential to the appropriate design, management, and implementation of fiscal policy.
1.7 SCOPE OF THE STUDY
The focus of this thesis was to determine the relative effectiveness of monetary and fiscal policy in macroeconomic stabilization in Nigeria. The study considers Nigeria as a developing economy. Some exogenous variables were considered to have an effect on economic growth and prices for a developing economy, and were taken into consideration in the analysis. The study covered the period from 1980 to 2015. Though a large data sample size is acknowledged for econometric analysis, data before 1980 could not be used in order to avoid outliers, given that this is a period where economic growth and prices were affected by war that took place between 1980 and 2015. In addition, the period after 1980, corresponds with fully liberalization of economic activity through implementation of structural adjustment programme (SAP). Quarterly data were used for the analysis, and theories about their usefulness were provided.
You either get what you want or your money back. T&C Apply
You can find more project topics easily, just search
SIMILAR ECONOMICS FINAL YEAR PROJECT RESEARCH TOPICS
» Abstract Nigeria as nation has over the years engaged in lots of developmental activities without actions which makes achievements to elude the people...Continue Reading »
» CHAPTER ONE INTRODUCTION 1.1 Background of Study Anambra State Governor, Peter Obi, and the Bishop of Anglican Diocese of Lagos Mainland, Rt. Rev. Ade...Continue Reading »
» CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY Prior to the enactment of the Pension Reform Act (2004), Pension Schemes in Nigeria had been bede...Continue Reading »
» ABSTRACTThis study examine empirically, economic analysis of the stock exchange and capital accumulation in Nigeria over the period 1980 2010. Nigeria...Continue Reading »
» CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY Oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of th...Continue Reading »
6. THE IMPORTANCE OF STUDING ECONOMICS OF CO-OPERATION AS A QUALIFYING SUBJECT FOR THE AWARD OF O.N. D IN BUSINESS STUDIES» CHAPTER ONE 1.0 INTRODUCTION 1.1 BACKGROUND OF THE STUDY. The entire development of a business enterprise in a particular country required difference ...Continue Reading »
» CHAPTER ONE 1.0 INTRODUCTION 1.1 BACKGROUND OF THE STUDY The currency of a nation would normally serve as a medium of exchange a standard of rate and ...Continue Reading »
» CHAPTER ONE1.1 BACKGROUND OF THE STUDYSince Nigeria got her independence in 1960, it has created policies which are geared towards promoting the Niger...Continue Reading »
» CHAPTER ONE 1.1 Background to the Study The relationship between government expenditure and economic growth has continued series of debate among schol...Continue Reading »
» CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY History has if that Adam Smith was the first writer to produce a work devoted to economics (Adeba...Continue Reading »